Interest Rate Roundup

Sunday, September 14, 2008

Monday market madness

Monday is shaping up to be one heck of a wild day in the markets. Get a load of these headlines from the WSJ site this evening:

For Lehman, Liquidation Seems the Most Likely Scenario
The fate of Lehman Brothers darkened as Barclays, the sole remaining bidder for the firm, told federal regulators that it was walking away from a transaction.

Bank of America, Merrill Lynch in Merger Talks
Bank of America and Merrill Lynch are in merger discussions. Much remains uncertain and conditions were fluid.

AIG Plans Restructuring
AIG plans to disclose a comprehensive restructuring early Monday that is likely to include the disposal of major assets, including its aircraft-leasing business.

Meanwhile, the Journal reports that a special Sunday trading session has been opened to allow credit default swap traders to transact business. An excerpt:

"As word that a Barclays deal was off filtered across Wall Street, credit derivative traders scrambled to unwind their outstanding contracts with Lehman and shift their positions to other banks. CDS traders at many Wall Street firms were told to come to work immediately.

"With many trading desks open, investors rushed to buy credit default swaps tied to other brokerages and corporations, sending the cost of protection on investment banks such as Goldman Sachs and others sharply higher. One senior trader said Bank of America is offering to face Lehman's counterparties in CDS trades, as long as the swaps don't reference Lehman's own debt.

"In a statement on Sunday, the International Swaps and Derivatives Association, a trade group whose members include many large dealers, said a "netting trading session" will take place between 2 p.m. and 4 p.m. on Sunday to allow Lehman's counterparties to offset their positions against each other.

"The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy filing," it said, adding that trades conducted during this period "are contingent on a bankruptcy filing on or before 11.59 p.m. New York time" today. If no filing takes place, the trades will be canceled, ISDA said."

In early Globex trading, by the way, the S&P futures are down about 38 points though anything can change between now and the New York open tomorrow.

UPDATE: The New York Times is reporting that Lehman will be filing for bankruptcy protection.


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